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Newsletter | Articles
  Climate Change: A Challenge for Directors
Climate change is the greatest environmental challenge facing the world today, however, it will provide significant opportunities for companies and individuals.
The global climate is changing and man-made carbon emissions are the cause. A report from the Intergovernmental Panel on Climate Change has recently reinforced this link.
Governments around the world are taking climate change seriously. At the Spring Summit, EU leaders endorsed targets, which will be legally binding for renewable energy use for the EU.
In the coming years climate change will provide significant corporate opportunities.
However, risks include:
- Adverse weather events could leave certain geographical areas or business sectors exposed to severe disruption
- The increasing worldwide regulation of carbon could impose increasing financial burdens on industries with large carbon footprints
- Customers and investors could decide to avoid carbon intensive businesses or companies which are not addressing their carbon footprint
- Suppliers’ or customers’ failure to manage climate change risks and poor performance of investments affected by climate change could impact on a company's results
- Actions could be brought against carbon intensive businesses by people who have suffered climate change-related damage
Traditionally, environmental pressure groups have targeted companies over their environmental performance. However, investors are now scrutinising corporate activity so directors must take steps to ensure climate change opportunities and risks are factored into their decision-making processes. Failure could result in legal action or criticism as two aspects of the UK’s Companies Act 2006 (the sections on mandatory social and environmental reporting and new director duties) increase directors' exposure to this:
- In promoting the success of the company the director must have regard to six specific factors including, “the impact of the company's operations on the community and the environment".
- The Act creates a new statutory derivative action against directors for breach of their duties including the duty to have regard to the environment.
It has become popular for directors to report good news of their activities, which address their company’s climate change impacts and exposures, so as to send the right signals to investors, lobbying groups, government and others. However, business should ensure their actions and words match up.
In order to address these issues companies need to evaluate how climate change affects them and act accordingly. The responsibility of directors is evident.
For more information on the UK Companies Act 2006 please contact Karen Jones.
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